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October 15, 2013

Schwab Q3 Results Surprise Analysts; Citi Fails to Hit Estimates

Net new assets for Schwab were nearly $43 billion, a big jump, according to CEO Bettinger

CEO Michael Corbat of Citigroup. (Photo: AP)

Charles Schwab (SCHW) reported a 17% jump in third-quarter profits to $290 million on Tuesday, while its earnings of $0.22 per share topped Wall Street estimates by $0.02.

Its revenue jump of 15% to nearly $1.4 billion represented a 13-year record for the firm. Plus, the firm says it anticipates sales growth to outpace costs by 3%-5% next year.

The company’s client results “supported double-digit percentage increases in all three of our main revenue sources and 15% overall revenue growth versus the year-ago quarter,” according to CEO Walt Bettinger.

“Even with the continued headwind created by an interest rate environment that remains at historic lows, our third-quarter revenues surpassed all our prior quarterly results save the extraordinary spike we experienced at the height of the Internet bubble,” Bettinger said in a statement.

In the second quarter, the brokerage group saw its sales rise just 4% to $1.34 billion, while expenses jumped 9% in the period.

Schwab has more than $2 trillion in client assets, the CEO notes, and they have been growing at a compound annual rate of 10% over the past five years. Clients that own about half of these assets are enrolled in Schwab programs that include “some form of ongoing advice, reflecting a decades-long evolution at Schwab beyond our discount-brokerage roots,” he added.

Of the $1 trillion, some $890 billion are client assets tied to accounts with independent advisors. The rest are enrolled in one of Schwab’s eight retail advisory offerings.

These two groups of assets each had 17% year-over-year increases.

“Our work on this front continues, as we provide an alternative to the traditional Wall Street model by offering sophisticated, needs-based approaches designed to enable today’s investors to get the help that’s right for them,” the CEO said.

Net new assets in Q3 were close to $43 billion, up 97% from the year-ago period and, Bettinger says, “the highest in Schwab history for a summer quarter.”

The number of active brokerage and banking accounts improved in the latest period, though the figure for corporate retirement plan participants dropped as expected due to Schwab’s consolidation of its plan recordkeeping technology platforms.

Citi's Conundrum

Citigroup (C) said Tuesday that it had a third-quarter profit of $3.23 billion profit in the third quarter, missing analysts’ estimates, but handily topping last year’s net income of $468 million with a nearly 600% increase.

It blamed a 26% decline in bond trading and fallback in U.S. mortgage activity. (In last year’s third quarter, the bank recorded a $2.9 billion loss on its Morgan Stanley Smith Barney joint venture.)

"We performed relatively well in this challenging, uneven macro environment," said CEO Michael Corbat, in a press release. "While many of the factors which influence our revenues are not within our full control, we certainly can control our costs, and I am pleased with our expense discipline and improved efficiency year-to-date.”

Overall, securities and banking sales dropped 2% from the prior-year period to $4.7 billion, while the unit’s net income shrank 16% from last year to $989 million. Private bank revenues, however, improved 1% to $614 million.

“With the environment remaining challenging, we will continue to focus on all aspects of our business to improve client satisfaction and shareholder results consistent with our strategy," Corbat said.

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